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Asset prices and fiscal balances

Author

Listed:
  • Eschenbach, Felix
  • Schuknecht, Ludger

Abstract

The paper argues that there are important links between asset prices and public finances which can strongly affect the variability of fiscal balances. Asset prices affect fiscal balances via capital gains and turnover related taxes, and via wealth effects on consumption and indirect taxes. The fiscal costs of asset price changes can be higher if government can be held liable for balance sheet losses from an asset price downturn. An empirical study finds significant effects of house and/or stock prices on revenue in a majority of the 17 OECD countries and revenue categories examined. On average, a 10-percent change in real estate and stock prices has a similar effect on the fiscal balance as a 1-percent change in output, although effects differ considerably across countries. By 2001-2002, some countries' fiscal balances seem upward biased, due to positive effects from earlier asset price booms. JEL Classification: H3, H6, E6, G1

Suggested Citation

  • Eschenbach, Felix & Schuknecht, Ludger, 2002. "Asset prices and fiscal balances," Working Paper Series 0141, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20020141
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    File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp141.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Agnello, Luca & Castro, Vítor & Sousa, Ricardo M., 2012. "How does fiscal policy react to wealth composition and asset prices?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 874-890.
    2. Wolswijk, Guido, 2005. "On some fiscal effects on mortgage debt growth in the EU," Working Paper Series 526, European Central Bank.
    3. Kremer, Jana & Braz, Cláudia Rodrigues & Brosens, Teunis & Langenus, Geert & Momigliano, Sandro & Spolander, Mikko, 2006. "A disaggregated framework for the analysis of structural developments in public finances," Discussion Paper Series 1: Economic Studies 2006,05, Deutsche Bundesbank.
    4. Tagkalakis, Athanasios, 2011. "Asset price volatility and government revenue," Economic Modelling, Elsevier, vol. 28(6), pages 2532-2543.
    5. Rangan Gupta & Chi Keung Marco Lau & Stephen M. Miller & Mark E. Wohar, 2017. "U.S. Fiscal Policy and Asset Prices: The Role of Partisan Conflict," Working Papers 201742, University of Pretoria, Department of Economics.
    6. Kremer, Jana & Rodrigues Braz, Cláudia & Brosens, Teunis & Langenus, Geert & Momigliano, Sandro & Spolander, Mikko, 2006. "A disaggregated framework for the analysis of structural developments in public finances," Working Paper Series 579, European Central Bank.
    7. Tagkalakis, Athanasios, 2011. "Fiscal policy and financial market movements," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 231-251, January.
    8. Kenneth K. Chow & Matthew S. Yiu & Charles Ka Yui Leung & Dickson C. Tam, 2008. "Does the DiPasquale-Wheaton Model Explain the House Price Dynamics in China Cities?," Working Papers 212008, Hong Kong Institute for Monetary Research.
    9. Tagkalakis, Athanasios, 2011. "Fiscal adjustments and asset price changes," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 206-223, June.
    10. Dai, Meixing & Sidiropoulos, Moïse, 2003. "Les prix des actifs et la stratégie de politique monétaire de la BCE
      [Asset prices and the monetary policy strastegy of the ECB]
      ," MPRA Paper 13833, University Library of Munich, Germany, revised Jul 2003.
    11. Yang, Weonho & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Macroeconomic effects of fiscal adjustment: A tale of two approaches," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 31-60.

    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G1 - Financial Economics - - General Financial Markets

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